05 Dec HARSEST – The Agency Contract
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The role of agent
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The contents of the contract
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Post-contract activities
There may be countries or regions where retailers are not able to manage the brand because of language and cultural barriers. Foreign partners, such as agency or distributor, are needed in this situation. Also, when participating in international fairs, the agency can be helpful in overcoming the invisible barrier. This report explains the contract between agency and brand in detail.
The role of the agent
In the fashion business, the agency refers to a PR agent and sales agent. In this report, an agent indicates the sales agent as partners in each overseas region. There are agents in NY, LA, London, Paris, Berlin, and Milano that help a brand, including sales within a showroom. Others have a temporary showroom for a sales period. In mid-America, and South-East Australia, there are agents who hold the product and tour after making an appointment with the retailers. There are also online agents who show collections, receive an order and provide look book, 3D rendering, etc. through online channels.
The agencies with a certain size usually have permanent showrooms, while start-ups or small and medium-sized agents have a pop-up showroom. Some agencies provide help in the fair by accommodating staffs.
Each agency has a different way of operating. On a larger scale, sales agencies will be provided with collection samples, Look book, Line sheets, Oder Form, Price lists, Conditions and Terms from the brand.
The agency has the role of receiving orders by providing such items to the buyers.
When the brand delivers materials, they have to make sure to notify the important items with a brief introduction, so that the agents can approach buyers with a more detailed explanation.
Some sales agents earn their income from brands or through sample sales. Sales agencies usually get a 10%-15% commission fee from the sales amount. Most U.S. showrooms and some of the European showrooms charge a monthly bill on top of the commission. The monthly bill covers the rent of the showroom. The commission of 10%-15% as mentioned in the net order amount ordered by the retailer excludes the shipping cost. The brand receives the net order amount and pays the agency.
The sales period of the AW season is from January to March. For instance, when the sales agent sells 5,000 euros to five retailers at the agreed upon commission rate, the retailer pays the brand and the agent receives 3,750 euros (5000*0.15*5) from July to August. For an agency to receive at least 3,000 euros of salary per month, 5000 euros on a 15 % commission basis to five retailers with five brands should be achieved. (Based on 6 months of revenue per season)
5 X 5 X 5000 X 0.15 / 6 = 3,125 euros
Unfortunately, it is difficult to find an agent who satisfies the brand, speaking from the experience of working with more than 30 agencies. Showroom owners are more likely to be active in the fashion industry than in business. Rather than increasing sales, it may negatively affect the sales. Only a few people are making enough money as a full-time agent. Some large agencies with many sell-through brands, could be an exception; however, other costs increase as they hire more employees. From April to June and October to December, which are not seasonal periods, sales are slow, so large agencies often run different businesses.
It is difficult for brands to enter regions such as France, Italy, and Spain without an agency. Unless the brand has experience and fluent language abilities in these countries, advancement and extending the brand could be challenging. To enter the UK market for example, there is a limited number of retailers who are available. Popular shops and department store buyers are impossible to reach through email; therefore, the brand has difficulties in contacting buyers. On the other hand, agencies possess a list of retailers because relations with retailers determine their annual salary. However, unless there is an agent who has good relationships with the agency and the brand is introduced to the retailer and he buys the product, it is difficult to make a big sale in the first season. It still opens an opportunity to promote the brands by signing a contract with those agencies. When signing a contract, the new agency needs to be informed about the previous agency, so they can use the information as a reference. Similar to getting a job at a company; the first agency who signs a contract is very important. Retailers are likely to show more interest if there is a large list of international agents and distributors in the look book. If the brand approaches a global brand and has enough money to produce samples, it can focus on expanding agents and distributors.
The designated areas are usually narrowed down by countries, while some are grouped by languages. For example, Switzerland, Austria, and Germany are combined under the German section, France and Belgium are combined under the French, and Latin America and Spain are combined under the Spanish. Large regions such as United States and Australia are often divided into East and West (large corporations have LA and NY as their main headquarters or have sales partners in different countries). As for designer brands, there is almost no central sales agency. Australia is divided into following regions: Brisbane Queensland (QLD), Sydney New South Wales (NSW), and Melbourne Victoria (VIC).
South Australia (SA), West Australia (WA), and Tasmania (TAS) are usually taken care of by an agent in the Victoria area.
In terms of delivery and payment, the agency’s role differs greatly from the distributor who is responsible for everything.
Distributors are responsible for large volume 1:1 orders to the brand, offering discounts and distribution, sales, and brand promotion within the designated area.
One of the main roles of agencies is helping a brand at the fair. It is not easy for a Korean brand to decorate the booth in the fair due to reasons such as the movement of the inventory. There was a French agency that had put our inventory in their warehouse after the fair and held onto it until the next season. In this way, we could save a lot of time and money. Working with an agent that is from the same country where the fair is held, could be beneficial. It is also possible to form a friendship with a local agent. If you are uncomfortable with the language, agents can be a helpful guide.
It has a promotional effect on the B2B rather than on the B2C (the retailers). Since most agencies are on SNS, it can be an opportunity to introduce the brand to local retailers. Sales agencies are not able to expose the brand’s products to the media as the PR agency; however, they have ties with magazines and Bloggers. When the agent holds on to the samples after the sales period, they can send the samples directly to the press.
Sample sales are only conducted when the company is connected with the brand in advance or is specified in the contract. When the number of samples is large and not significant when sent back to the country, sell it on the Press Day to have an opportunity to present it to influencers. Usually, the sample price is between the wholesale and retail price, and the total profit is often divided equally with the brand. In this case, it may be convenient to obtain a loan through a commission fee than to provide a payment immediately.
There are four ways to find these agents.
The first way is to check modem online where agents are listed. Check the brands they handle. The second way is to find an agent in the region that works with a brand, which is similar to yours in terms of style, price, etc. There is a way to suggest we work together at Yeoju.
The last way is to meet an agent at a fair. A large number of agents and distributors participate in fairs. When an agent randomly enters the booth and offers to be an agent, they are highly likely to be unprofessional. In most cases, if the agent is interested, they will contact the brand in advance by email and make an appointment to have a conversation. Check the website written on the agency’s business card to avoid wasting time. Lastly, there is a way to be introduced to an agent through a retailer who is purchasing from the brand. Stable retailers communicate directly with the brand, and purchase from the local agency; therefore, they already have information about respectable agencies. This is beneficial for both the retailer and the agent. From a retailer’s perspective, it is easier to work with another brand through the agency that they introduce. The agency is able to get a sales commission from the retailer as well. As a result, brands, retailers, and agents can all be satisfied.
It is not always a good idea to sign a contract with a famous agency. In this case, it is possible for your product to be displayed in the back, while more popular brand’s products are shown in the front. Similar to this, working with agencies representing a well-known brand is not always beneficial. Choose a responsible agency that focusses on business with quick and helpful feedback. As for the brand; trust and support the agency for at least the first two or three seasons once signing a contract. Small agencies and small brands can grow together with long lasting relationships and become lifelong partners.
Contents of the contract
As for any business, the contract is often merely a piece of paper; however, it is also a security device that indicates the promises of the party. The contents vary, depending on the agency’s characteristics. According to a study, in the United States, Britain, and Israel contracts are much more important than in other countries, while northern Europe such as Sweden and Denmark have a higher degree of prudence. Those in Italy and Spain do not prioritize the contract. It is important to write a contract as concise and precise as possible, because it has a variety of linguistic and contextual interpretations. A contract over 30,000 euros can affect the cash flow and must be notarized in order to prevent possible disputes. The Korean version must be translated by a contract translation company. The essential contents of the contract are collected through dozens of contracts and shown on the following chart.
A. Information of the parties involved
The most basic parts include the company address, company name, business license number or corporate number, telephone number, and contract date.
B. Regions
Establish an area where an agent executes sales by specifying the name of the country, city, or state. In case of a free-zone agency, set up an area that the agent is not responsible for from a brand standpoint. For example, it eliminates possible conflicts that may arise from another agency contacting the retailer within an area with an existing agency or distributor. For reference, a contract with the free-zone agency must indicate that commission fees from sales will be divided when it overlaps with an existing agency in the first season to maintain fairness.
For example, brand A signed a contract with a free-zone agent. Through an agent, sales were made with retailer Z from Milano, Italy. In the next season, brand A signed a contract with agent B in Italy that made sales with retailer Z. The commission from sales should be divided 50:50 with the free-zone agent and agent B. (it is important for brands not to exceed the percentage of the commission that should be paid to both agents.) After that season, recommend the free-zone agent to avoid contacting Italian retailers to eliminate conflicts with the new Italian agent.
C. Objects
The object of the contract with the agency is to include the sales portion set in the region. In addition, the purpose of the contract includes peripheral details such as helping brands in the sales period, delivery and sales activities.
D. Products
For the total brand that releases clothes, sunglasses, accessories, and footwear, can set up the product group. For instance, exclude sunglasses from the sales category since the subcontractor is currently managing sales under license and receiving royalties.
E. Term of a contract
In most cases, the contract period is set to be 1 year (2 seasons). Brands seeking aggressive sales can raise commission rate by 6 months (per season) with a single contract. It is recommended to sign a contract for one year without a specific reason.
F. Wholesale price list
By referring the wholesale price list in the contract, the brand notifies the agent that the prices offered by the brand are the same as those received by other retailers and agencies. Brands are often asked to make a separate price list in the country’s currency. It is to prevent agents to provide a more expensive price list in order to gain more commission fee. Include delivery duty paid (DDP), a price list including shipping costs and tariffs, in this section.
Another example is in the event of a contract with the U.S. agency. Canada can be established as an additional sales area along with America. If main area sales are 15% commission, additional area commission fees should be around 10%. In case of a new contract with a Canadian agency, indicate in the contract about those retailers that the previous agency made sales, so that the new agency can take-over the sales.
G. Delivery
In the delivery section, the brand is setting how the agency will process the order.
The section indicates that the agency sends the order directly to the retailer, and the delivery company should be specified. If the retailer uses a forwarding company, put the storage address and pick-up location in advance. Usually, it includes how to deliver when agents receive an order. (e.g., send Excel file via email, access with agent name in B2B order system, and confirm after ordering).
H. Samples
This section is the main part of the contract. If the cost of making a sample is high, take serious consideration in this section. When there are many contracts with agents, creating samples can be a burden. In general, a brand sends samples before the beginning of the season (AW season: early January, SS: end of June), and return the sample at the end of March and late August after the season sales. Samples are sometimes sold to an agency at production cost for promotion and PR purposes. In this case, the delivery cost is specified in the section. Usually, brands pay for sending the samples and the agent pays for the return shipping.
I. Commission fee and Payment method
The commission fee is usually between 10%-15%; however, there are differences depending on the price and showroom availability. For an agent with a showroom, the commission is about 10% with the monthly payment. It is usually 12%-15% for agents without a showroom. This section indicates how to process a payment. Generally, it is paid after the payment from the retailer is completed. The payment methods are Pay Pal, account transfer, etc., with the account information (Swift code, bank account holder, bank address, bank account number). The agent receives a payment after the sales period within five business days. The invoice is sent to an agent after the retailer precedes a payment. Make sure that other items such as shipping costs are not included in the commission, in addition to the amount that the retailer purchases from the brand.
J. Showroom
This section includes a permanent showroom, nonpermanent showroom, and payment for participating in the fair, etc. For instance, when an agent has a permanent showroom, this section must include the monthly cost for the showroom. For those agents that have a nonpermanent showroom, include a payment regarding sales by inviting retailers to the showroom. It should also specify the cost for participating in fairs. If an agency is not able to fix the amount, they must inform the brand about the cost before the season begins. (The approximate cost must be checked before the contract.) The brand should specify the terms to help sales at the booth during a fair. Usually, a brand provides for hotel and three meals a day. If the fair is held in a different city or country, transportation fees may be included as well.
K. Termination of the contract
The reason for contract termination can be described briefly in detail. It is described in a concise language, for instance, “For many reasons, both parties can terminate the contract under mutual agreements; both parties will put an effort to resolve the situation. In case of termination, one must notify the other three months beforehand”. Since the contract could be considered as a piece of paper; it could be terminated regardless. This is why the contract should be carefully written; however, there is no reason to be stressed about it.
L. Renewal of the contract
The renewal of the contract specifies that the contract is automatically extended after the expiration date. It specifies that the contract will be automatically extended for one to two years if there is no specific reason for both parties to terminate the contract three months prior to the end of the contract.
Appendix
Additional sections can be updated at the end of the contract. In the Appendices section, it is used to eliminate the possibility of conflicts not specified in the contract and, if possible, to resolve any post-contract conflicts. For example, it includes sales channels, commission adjustments, current retailer protection, etc.
Examples on sales channel:
For example, if Agent A signed a contract and made sales through non-professional retailers from Taobao or Auction, it could have a negative effect on the brand. Make a request for the retailers’ information in order to prevent such situations.
Examples on commission fee:
Although usually found in distributor contracts, agency contracts may also refer to different commission payments according to volume in sales. For instance, if agents sell 5,000 euros per season, a brand can give 10% commission and 15% commission for sales over 50,000 euros.
Examples on the current retailer protection:
It is about managing the existing retailers in the established area before the contract. There are different methods, however, the best way to use of a sales agent is to specify, ” Retailer A and B, which are purchasing directly from the brand will be continued for the next two seasons. The agency will receive a commission for the sales from the third season.” If the agent has the ability to maintain the relationship with the retailer after one year, entrust them and give commission for the sale from then on. By doing so, you can prevent an agency from destroying a well-built relationship with retailers.
Post-contraction activities
The most important aspect of post-contraction activities is the unconditional trust towards the newly contracted agent. The relationship with the agent is based on another interaction with a person; neither relationship is built without trust. Actively support the agents by providing the look book and Line Sheet with a storytelling, so that the retailer does not feel pressured and increases confidence.
A well-known writer, who produced the writers of Lord of the Rings, Forrest Gump, Shrek, and Friends, Robert McKee said, storytelling while making a sales will become the brand’s power.
In addition, send an email to the agent to confirm that they have received the sample and ask them how the season is going. Request to pass orders immediately when sales take place, study the ordered retailers, and receive only the final version of orders once the season sale are over. Also, check the information in the order form (Company name, store name, invoice address, shipping address, VAT or registration number, order number, phone number, email address, etc.) Send an order confirmation and proforma invoice to retailers and send to CC agents or send it directly to agents, to get a final order confirmation.
Closing sentences
For a new brand or a brand that has no experience in the overseas market, it is recommended to conduct a season without an agency or distributor. The first and second season abroad is when the brand prepares the items for sales. Working with agents, after gaining overseas visibility, is better. Development in sales and other capabilities might not be visible shortly after signing a contract with an agency; however, if the agent has a passion to represent the brand, there should be improvements shortly afterwards. Let the agent build a relationship prior to business so that they can show the completion of the brand.
As a sales manager in Europe who has about five years of experience with a large number of agencies, as a business consultant specializing in fashion brands, if there is a brand that plans to expand overseas, relationship that is built with agents will be maintained even after they change jobs, or start working in a similar industry independently, they are likely to be your lifelong partner again.
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